Question

construct a dialogue between different petroleum products


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Answer 1

EXECUTIVE SUMMARY

Interest in a dialogue between oil-producing and consuming countries has recently

been revived by a joint Franco-Venezuelan initiative convening an inter-

governmentd seminar in Paris on 1st and 2nd July, 1991.

This Oxford Institute for Energy Studies (OIES) report, A Dialogue between Oil

Producers and Consumers: the Why and the How, addresses in a free thinking way

the issues which lie behind this interest in a multilateral approach to the energy

problem, assesses regional and bilateral strategies which are proposed by other

parties as alternatives, and suggests an agenda for inter-governmental

discussions.

We argue that a distinction needs to be made between a dialogue and a binding

international agreement. The dialogue should be conducted with an open mind

and the aim of finding out whether multilateral arrangements are relevant to the

solution of the problems at hand, not with the intention of negotiating &om the

start such an agreement.

The problem is defined as oil price instability together with its corollary, sharp

variations in the revenues of developing oil-producing countries. Two types of

instabdity are distinguished; the first refers to discontinuous and significant

changes in the oil price level, and the second to normal day-to-day market

fluctuations. In the past twenty years oil prices moved from one to a very

different level on three occasions as a result of shocks. Some are caused by

political disturbances; some by economic behaviour, either the investment cycle or

aggressive competition for market shares; some by both.

The effects of big shocks are often very damaging. They can cause economic

recession in the world at large or destabilize oil-producing countries in the third

worId. Shocks due to political disturbances cannot be avoided by means of

international energy policy; shocks caused by economic factors are avoidable; and

in both cases adverse effects can be significantly mitigated.

Can the oil market heIp in this respect? This report argues that the market plays

a very useful, yet imperfect, role in allocating resources in the short run but is

unable to provide appropriate price signals for investment decisions that influence

the oil supply/demand balance in the long run.

Peculiar features of oil economics, namely a very low cost floor for crude oil

production and a very high price ceiling set by substitutes, mean that the setting

of an oil price level is a fairly arbitrary affair. As the market does not get much

guidance &om economics on where the level should be, it seeks cues from

elsewhere.

Answer 2

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